In re Lehman Bros.
58 Bankr. Ct. Dec. (CRR) 26
Bankr. S.D.N.Y.2013Background
- Trustee seeks SIPA customer-status determinations for repurchase/reverse repurchase claims against LBI.
- Court must determine whether repurchase claims are customer claims based on entrustment of cash/securities.
- Representative Claimants’ repos were largely from LBI’s perspective as Buyer; they held DVP accounts with no property held by LBI on the Commencement Date.
- MRAs govern the transactions and permit use/hypothecation of Purchased Securities; no mandatory hold-for-seller custody.
- On Commencement Date, Purchased Securities were not held by LBI; many were hypothecated or held by third parties; no identified property in LBI’s possession.
- Court grants Motion, holding no customer claims exist because entrustment requirement is not satisfied.
- Discussion connects to TBA Decision and Bevill, Bresler distinctions to emphasize lack of property held by broker-dealer for claimants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether entrustment is satisfied to confer SIPA customer status | Representative Claimants contend entrustment via MRA and accounts. | Trustee argues no actual possession or hold; DVP structure defeats entrustment. | Entrustment not shown; no customer status. |
| Effect of MRAs and DVP accounts on entrustment and customer status | Contractual expectations show deemed entrustment. | MRAs allow hypothecation; not possessory; DVP accounts not holding property. | MRAs/DVP do not create entrustment; still not customers. |
| Relevance of Bevill, Bresler and TBA decisions | Bevill supports customer status under some repos. | Bevill is distinguishable; no safekeeping; TBA supportive but aligned with lack of property. | Bevill not controlling; TBA aligns with outcome; no customer claims. |
Key Cases Cited
- In re Lehman Brothers Inc., 462 B.R. 53, 462 B.R. 53 (S.D.N.Y. 2011) (TBA-like reasoning: no identified property means no customer claim)
- Bevill, Bresler & Sehulman Asset Mgmt. Corp., 67 B.R. 557 (D.N.J. 1986) (distinguishable repos; safekeeping not present here)
- In re Brentwood Secs., Inc., 925 F.2d 325 (9th Cir. 1991) (entrustment requirement; SIPA protections depend on entrusted cash/securities)
- SEC v. Kenneth Bove & Co., 378 F.Supp. 697 (S.D.N.Y. 1974) (actual possession required for protection; mere contractual duty insufficient)
- In re Adler, Coleman Clearing Corp., 277 B.R. 520 (S.D.N.Y. 2002) (burden on claimant to prove entitlement to SIPA protection)